Technology Is the Foundation of Efficient and Effective Capital Markets

Technology Is the Foundation of Efficient and Effective Capital Markets

Posted on Wed, Mar 13, 2019 @ 7:00

By John Davidson, OCC
Originally published on the TABBFORUM

OCC’s CEO John Davidson says the U.S. has the world’s deepest and most liquid capital markets in part because it has the best and most innovative technology from a plethora of highly competitive users and providers.

The U.S. has the world’s deepest and most liquid capital markets in part because it has the best and most innovative technology from a plethora of highly competitive users and providers. Within the market infrastructure industry, I see technology as an enabler of efficient and effective capital markets.

At OCC, technology is central to our role as a central counterparty (CCP). As a CCP, our reliability and clearing efficiency allow market participants to trade with confidence in the underlying system. We do not promote a particular set of products or investment styles and priorities. Rather, we are focused on protecting the financial integrity of the markets in aggregate, as well as in detail.

That’s why OCC’s key strategic priority over the next several years is our Renaissance Initiative. It’s a multi-year investment to modernize our critical risk management, core clearing, and data systems. Our goal is to deliver numerous improvements to our capabilities, including improved extended hours risk management, industry-standard futures processing, and easier and more timely access to clearing data, with the final aspects in parallel production by the end of 2021.

The Renaissance Initiative will be a substantial technology upgrade that will benefit OCC and the users of our markets. When completed, it will provide OCC with the ability to operate risk, clearing, and data applications based on a modular architecture, improve real-time and extended hours risk management capabilities, drive operational efficiency through process re-engineering and automation, and improve information transparency and service to our clearing firms while increasing product development agility and reduce time-to-market.

Trends on the Horizon

There are several macro trends that I believe will affect the capital markets going forward. The most immediate of those is political event risk. Particularly in Europe and the Americas, I believe political event risk will continue to drive market volatility spikes and associated volume.

The second macro trend I foresee is technology-related. Market fragmentation and algorithmic trading are growing. This will drive transaction volume and increase the complexity of meeting audit trail requirements, testing the market infrastructure industry’s clearing capacity, as well as regulators’ posture on a variety of issues.

Lastly, while it gets less attention in the general public than it should, cyber security is a major point of emphasis for all technology companies. This is not an issue that is going away. Increased cybercrime and the potential for activities by nation-state actors is a trend that I believe will gain in prominence. This is an issue OCC takes very seriously, and which requires continued high levels of focus and expenditures on all forms of information security.

OCC is working to meet these trends. The Renaissance Initiative is one example of our commitment to enhancing our resiliency and fortifying our operational effectiveness through the development of efficacious and secure technology. As a Systemically Important Financial Market Utility (SIFMU), we’re dedicated to serving as the foundation for secure markets and to ensuring confidence in the financial markets and broader economy.